United States: FinCEN Expands GTOs And Closes Wire Transfer Loophole

Andres Fernandez is a Partner and Elena Otero is an
Associate in our
Miami office .

HIGHLIGHTS:

The U.S. Department of the Treasury's Financial Crimes
Enforcement Network (FinCEN) continues to expand its Geographic
Targeting Orders (GTOs) with respect to beneficial ownership
transparency in real estate transactions.

It is clear that FinCEN remains concerned that "all
cash" purchases of real estate are being conducted by
individuals seeking to hide assets and launder money through opaque
entity structures.

The revised GTOs, issued on Aug. 22, 2017, add the City and
County of Honolulu, Hawaii, to the list of jurisdictions subject to
the GTOs (for transactions in an amount of $3 million or more) and
also expand the GTOs to include wire transfers within the
definition of "all cash" transactions. The addition of
wire transfers to the triggering transactions closes a notable
loophole left by the prior GTOs.

The U.S. Department of the Treasury's Financial Crimes
Enforcement Network (FinCEN) on Aug. 22, 2017, continued expanding
its Geographic Targeting Orders (the GTOs) with respect to
beneficial ownership transparency in real estate transactions. The
revised GTOs issued on Aug. 22 expanded the
prior GTOs by, among other changes, adding additional jurisdictions
to the previous GTOs and closing a loophole in the prior GTOs by
including wire transfers as part of the triggering transactions.
The Aug. 22 GTOs are effective beginning on Sept. 22, 2017, and are
scheduled to expire on March 20, 2018.

Background

FinCEN issued GTOs on Jan. 13, 2016, that temporarily required
various United States title insurance companies to identify the
natural persons behind companies1 used to pay "all
cash"2 for high-end residential real estate
purchased in the Manhattan borough of New York City and in
Florida's Miami-Dade County in amounts of $3 million and $1
million or more, respectively. The Jan. 13 GTOs were effective for
180 days3 as of March 1, 2016, and expired on Aug. 27,
2016.

The GTOs required that the affected title companies file FinCEN
Form 8300 within 30 days from the closing date reporting the
identity of the individual primarily responsible for representing
the buyer entity and the beneficial ownership of the entity,
defined in the Jan. 13 GTOs as the individuals who own, directly or
indirectly, 25 percent or more of the equity interests in the
entity. Subsequently, on July 27, 2016, FinCEN took additional
action and issued supplemental GTOs, effective as of Aug. 28, 2016,
that expanded the reach of the Jan. 13 GTOs. The July 27 GTOs were
directed to all boroughs of New York City, including Manhattan;
Miami-Dade, Broward and Palm Beach counties in Florida; Los
Angeles, San Francisco, San Mateo, Santa Clara and San Diego
counties in California; and Bexar County in Texas. The July 27 GTOs
set monetary thresholds ranging from $500,000 to $3 million,
depending on the jurisdiction.

The New Additions

Adding to the prior GTOs, FinCEN has now, in its Aug. 22, 2017,
GTOs, added the City and County of Honolulu, Hawaii, to the list of
jurisdictions subject to the GTOs (for transactions in an amount of
$3 million or more) and also expanded the GTOs to include wire
transfers within the definition of "all cash"
transactions. The addition of wire transfers to the triggering
transactions closes a notable loophole left by the prior GTOs. The
Aug. 22 GTOs are effective beginning on Sept. 22, 2017, and are
scheduled to expire on March 20, 2018.

Additionally, along with the Aug. 22 GTOs, FinCEN issued an Advisory to Financial Institutions and Real Estate
Firms and Professionals (the Advisory) urging "real estate
brokers, escrow agents, title insurers, and other real estate
professionals" to voluntarily report suspicious activity by
filing a Suspicious Activity Report (SAR) with FinCEN, although
currently not required.

Takeaways and Considerations

It is clear that FinCEN remains concerned that "all
cash" purchases of real estate are being conducted by
individuals seeking to hide assets and launder money through opaque
entity structures. FinCEN Acting Director Jamal El-Hindi has
notably stated on various occasions that the information obtained
through the Jan. 13, 2016, and July 27, 2016, GTOs have provided
valuable information regarding possible illicit activity. This
information has also been useful to federal and state law
enforcement agencies in aiding the discovery of potential assets
held by persons of interest to them.

Based on FinCEN's and law enforcement's continued focus
on the real estate industry, financial institutions and real estate
professionals should take this opportunity to review their internal
controls related to real estate transactions. While real estate
professionals are not the subject of any GTOs or, otherwise,
formally required to file SARs, it seems, based on the cautionary
language in the Advisory, that such professionals are being
encouraged to voluntarily adopt certain anti-money laundering
measures such as filing SARs.

Footnotes

1 The Jan. 13, 2016, GTOs define a "legal
entity" as a corporation, limited liability company,
partnership or other similar business entity, whether formed under
the laws of a state, the U.S. or a foreign
jurisdiction.

2 "All cash" includes currency, cashier's
checks, certified checks, traveler's checks or money orders
used as any part (no de minimus exception) of the purchase
price. Business checks, personal checks and wire transfers did not
trigger the requirements under the initial Jan. 13 GTOs, but
business checks and personal checks were subsequently included with
the extension of such GTOs on July 27, 2016. Now, the Aug. 22,
2017, GTOs also include wire transfers as part of the "all
cash" definition.

3 GTOs are permitted to last only 180 days but are
routinely extended.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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